Test Bank for Essentials of Investments 11th Edition by Bodie Kane Marcus sample PDF

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Essentials of Investments, 11e (Bodie) Chapter 2 Asset Classes and Financial Instruments 1) Which of the following is not a money market instrument? A) Treasury bill B) commercial paper C) preferred stock D) bankers' acceptance Answer: C Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 2) T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks A) I and II only B) I and III only C) I, II, and III only D) I, II, III, and IV Answer: B Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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3) When computing the bank discount yield, you would use ________ days in the year. A) 260 B) 360 C) 365 D) 366 Answer: B Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 4) A dollar-denominated deposit at a London bank is called ________. A) eurodollars B) LIBOR C) fed funds D) bankers' acceptance Answer: A Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 5) Money market securities are sometimes referred to as cash equivalents because ________. A) they are safe and marketable B) they are not liquid C) they are high-risk D) they are low-denomination Answer: A Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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6) The most marketable money market security is ________. A) Treasury bills B) bankers' acceptances C) certificates of deposit D) common stock Answer: A Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 7) The minimum tick size, or spread between prices in the Treasury bond market, is A) 1/8 of a point. B) 1/16 of a point. C) 1/32 of a point. D) 1/128 of a point. Answer: D Difficulty: 2 Medium Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 8) An investor in a T-bill earns interest by ________. A) receiving interest payments every 90 days B) receiving dividend payments every 30 days C) converting the T-bill at maturity into a higher-valued T-note D) buying the bill at a discount from the face value to be received at maturity Answer: D Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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9) ________ would not be included in the EAFE index. A) Australia B) Canada C) France D) Japan Answer: B Difficulty: 3 Hard Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 10) ________ is considered to be an emerging market country. A) France B) Norway C) Brazil D) Canada Answer: C Difficulty: 2 Medium Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 11) Which one of the following is a true statement? A) Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors. B) Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock. C) Preferred stockholders have voting power. D) Investors can sue managers for nonpayment of preferred dividends. Answer: B Difficulty: 2 Medium Topic: Equity Securities Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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12) The bid price of a Treasury bill is ________. A) the price at which the dealer in Treasury bills is willing to sell the bill B) the price at which the dealer in Treasury bills is willing to buy the bill C) greater than the ask price of the Treasury bill expressed in dollar terms D) the price at which the investor can buy the Treasury bill Answer: B Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 13) The German stock market is measured by which market index? A) FTSE B) Dow Jones 30 C) DAX D) Nikkei Answer: C Difficulty: 1 Easy Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 14) Deposits of commercial banks at the Federal Reserve are called ________. A) bankers' acceptances B) federal funds C) repurchase agreements D) time deposits Answer: B Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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15) Which of the following is not a true statement regarding municipal bonds? A) A municipal bond is a debt obligation issued by state or local governments. B) A municipal bond is a debt obligation issued by the federal government. C) The interest income from a municipal bond is exempt from federal income taxation. D) The interest income from a municipal bond is exempt from state and local taxation in the issuing state. Answer: B Difficulty: 1 Easy Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 16) Which of the following is not a characteristic of a money market instrument? A) liquidity B) marketability C) low risk D) maturity greater than 1 year Answer: D Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 17) An individual who goes short in a futures position ________. A) commits to delivering the underlying commodity at contract maturity B) commits to purchasing the underlying commodity at contract maturity C) has the right to deliver the underlying commodity at contract maturity D) has the right to purchase the underlying commodity at contract maturity Answer: A Difficulty: 1 Easy Topic: Derivative Markets Learning Objective: 02-03 Calculate the profit or loss on investments in options and futures contracts. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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18) Which of the following is not a nickname for an agency associated with the mortgage markets? A) Fannie Mae B) Freddie Mac C) Sallie Mae D) Ginnie Mae Answer: C Difficulty: 1 Easy Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 19) Commercial paper is a short-term security issued by ________ to raise funds. A) the Federal Reserve B) the New York Stock Exchange C) large well-known companies D) all of these options Answer: C Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 20) The maximum maturity on commercial paper is ________. A) 270 days B) 180 days C) 90 days D) 30 days Answer: A Difficulty: 2 Medium Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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21) Which one of the following is a true statement regarding the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. D) It is a value-weighted average of all stocks traded on the New York Stock Exchange. Answer: B Difficulty: 1 Easy Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 22) Treasury bills are financial instruments issued by ________ to raise funds. A) commercial banks B) the federal government C) large corporations D) state and city governments Answer: B Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 23) Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000. II. Income earned on T-bills is exempt from all federal taxes. III. Income earned on T-bills is exempt from state and local taxes. A) I only B) I and II only C) I and III only D) I, II, and III Answer: C Difficulty: 2 Medium Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 8 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

24) A bond that has no collateral is called a ________. A) callable bond B) debenture C) junk bond D) mortgage Answer: B Difficulty: 1 Easy Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 25) A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap Answer: C Difficulty: 1 Easy Topic: Derivative Markets Learning Objective: 02-03 Calculate the profit or loss on investments in options and futures contracts. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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26) A T-bill quote sheet has 90-day T-bill quotes with a 4.92 ask and a 4.86 bid. If the bill has a $10,000 face value, an investor could sell this bill for ________. A) $10,000 B) $9,878.50 C) $9,877 D) $9,880.16 Answer: B Explanation: $9,878.50 = $10,000 × Difficulty: 3 Hard Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 27) Which one of the following is a true statement regarding corporate bonds? A) A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares. B) A corporate debenture is a secured bond. C) A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. D) Holders of corporate bonds have voting rights in the company. Answer: C Difficulty: 2 Medium Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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28) The yield on tax-exempt bonds is ________. A) usually less than 50% of the yield on taxable bonds B) normally about 90% of the yield on taxable bonds C) greater than the yield on taxable bonds D) less than the yield on taxable bonds Answer: D Difficulty: 1 Easy Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 29) ________ is not a money market instrument. A) A certificate of deposit B) A Treasury bill C) A Treasury bond D) Commercial paper Answer: C Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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30) An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity for $9800. The bill has a face value of $10,000. The investor's bond equivalent yield on this investment is ________. A) 4.8% B) 4.97% C) 5.47% D) 5.74% Answer: B Explanation: $9,800 = $10,000 × × = 4.97 Difficulty: 3 Hard Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 31) The U.K. stock index is the ________. A) DAX B) FTSE C) GSE D) TSE Answer: B Difficulty: 1 Easy Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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32) A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap Answer: A Difficulty: 1 Easy Topic: Derivative Markets Learning Objective: 02-03 Calculate the profit or loss on investments in options and futures contracts. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 33) Which one of the following provides the best example of securitization? A) convertible bond B) call option C) mortgage pass-through security D) preferred stock Answer: C Difficulty: 1 Easy Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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34) Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000 A) I and II only B) II and III only C) I and III only D) I, II, and III Answer: D Difficulty: 1 Easy Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 35) The interest rate charged by large banks in London to lend money among themselves is called ________. A) the prime rate B) the discount rate C) the federal funds rate D) LIBOR Answer: D Difficulty: 1 Easy Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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36) A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following? A) reverse repurchase agreement B) bankers' acceptance C) commercial paper D) repurchase agreement Answer: D Difficulty: 2 Medium Topic: The Money Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation 37) Currently, the Dow Jones Industrial Average is computed by ________. A) adding the prices of 30 large "blue-chip" stocks and dividing by 30 B) calculating the total market value of the 30 firms in the index and dividing by 30 C) measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day D) adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends Answer: D Difficulty: 2 Medium Topic: Stock and Bond Market Indexes Learning Objective: 02-02 Describe the construction of stock market indexes. Bloom's: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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38) An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, ________. A) 5% and 6.4% B) 5% and 5.44% C) 4.25% and 6.4% D) 5.75% and 5.44% Answer: B Explanation: After-tax return on municipal bond = 0.05 = 5% After-tax return on corporate bond = 0.064(1 - 0.15) = 0.0544 = 5.44% Difficulty: 2 Medium Topic: The Bond Market Learning Objective: 02-01 Distinguish among the major assets that trade in money markets and in capital markets. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation 3...